Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
An increase in the capital account surplus leads to a decrease in net exports.
B
A decrease in the capital account deficit results in higher net exports.
C
Economic policy adjustments have no effect on the capital account or net exports.
D
A balanced capital account directly correlates with stable net exports.
Understanding the Answer
Let's break down why this is correct
Answer
The capital account records financial transactions between a country and the rest of the world, such as investments and loans. When there are changes in the capital account, like an increase in foreign investments, it can lead to a stronger currency. A stronger currency makes a country's exports more expensive for foreign buyers, which can decrease net exports. For example, if a country receives a lot of foreign investment, its currency might strengthen, causing its goods to cost more abroad, leading to fewer sales to other countries. Therefore, economic policy adjustments that affect the capital account can significantly influence a country's net exports.
Detailed Explanation
When the capital account surplus increases, it means more money is coming into the country. Other options are incorrect because Some might think that reducing a capital account deficit automatically boosts exports; It's a common belief that economic policies don't affect the capital account or net exports.
Key Concepts
capital account
net exports
economic policy adjustments
Topic
Balance of Payments Adjustments
Difficulty
hard level question
Cognitive Level
understand
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